Tesla CEO Elon Musk has another argument for why he should be allowed to walk away from terminating his $44 billion Twitter takeover deal. Twitter says the claim has no merit.
Twitter stock fell modestly Monday after rallying sharply last week. Tesla rose after surging last week.
Elon Musk: 'Additional Notice Of Termination'
On Friday night, Elon Musk disclosed he still has a 9.6% TWTR stock stake but with an "additional notice of termination of the agreement."
This one centers on a severance payment to whistleblower Peiter "Mudge" Zatko.
"On June 28, 2022, Twitter entered into a separation agreement with Peiter Zatko under which Twitter made severance payments to Zatko and his counsel totaling $7.75 million," Musk's lawyers wrote. "Twitter did not seek Defendants' consent under Section 6.1(e) before making this payment nor was this payment disclosed to Defendants."
Musk's lawyers said the Musk-Twitter merger deal doesn't allow Twitter to make severance/termination payments or other payments outside the ordinary course of business.
Twitter said Musk's latest claims are "invalid," arguing that the company "breached none of its representations or obligations under the Agreement."
The social media firm will likely argue that Zatko's severance was part of the ordinary course of business, which would be permitted under the merger deal. The payment was tied to lost compensation, following months of mediation.
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Musk had already seized on Zatko's claims about Twitter's lax security and proliferation of spam on the site. Twitter said it looked into Zatko's claims and said they were without merit.
Additionally, Zatko did not back up Musk's original merger termination claims regarding spam as a share of monetizeable daily active users, or mDAU. Twitter estimates that spam accounts for less than 5% of mDAU. Twitter has focused on mDAU as a metric for investors and advertisers.
Zatko will testify before the Senate Judiciary Committee on Tuesday regarding his claims.
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TWTR Stock Falls After Big Week
Twitter stock fell 1.85% to 41.41 amid the Musk's latest claims. TWTR stock jumped 9.2% last week to 42.19. That's still well below the $54.20 that Musk agreed to pay. But it's well above the recent TWTR stock low of 32.52 on July 12, shortly after Musk officially announced plans to terminate the Twitter takeover deal.
The Delaware Chancery Court last week agreed to let Elon Musk amend his countersuit to include some of Zatko's claims. But the judge denied his request to delay the trial. The Musk-Twitter merger trial is scheduled for five days starting Oct. 17. The judge also favored Twitter in various disclosure rulings.
TSLA stock surged 10.9% last week to 299.68, rebounding from its 50-day line and reclaiming its 200-day line. Shares of the EV giant arguably are flashing an aggressive entry.
Tesla stock rose 1.6% to 304.42 on Monday, moving above the 300 level.
Tesla stock is on the IBD 50.
On Tuesday, Twitter shareholders vote on whether or not to approve Musk's takeover. Given the $54.20-a-share offer, it's expected to pass easily.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
